Last November, I was approached by an Australian customer to source an engagement stone for her. She wanted a Ceylon sapphire, 4 carats, emerald cut, no heat, with cert. The budget: $15,000. Needless to say I don’t have those kinds of stones lying around. Not in that price range for sure, but I also don’t have the kind of inventory in larger sizes that allows for such specifics. Nonetheless I was intrigued to see if I could make this happen. But where would I get the stone, how would I ship it, and what if the customer didn’t like what I picked? Would I be saddled with an expensive gem that I couldn’t use, and a huge tab?
This little anecdote illustrates how much risk is involved in buying and selling gems. There are risks concerning storage, transport, theft and last but not least, enormous risks of financial loss. How is this risk managed? Part of the answer is easy: you can get insurance, you can have a safe, and you can get an alarm system. But that’s not the whole story. Most insurance companies have a high deductible and demand high premiums, so it only pays to have it when you carry high end inventory. When I looked for insurance for my jewelry business, I was offered a deductible of $5,000 at a premium of $5000 per year and a $50,000 insurance max. This basically made no sense for me. I don’t own anything that’s $5000.
|4 Carat Sapphire, Ceylon, No Heat|
The most interesting risk calculation, however, involves risk of return. What if the customer isn’t happy with her purchase? Who pays? In cases like this, the safe spot is that of middle man. You memo out a gem the customer might be interested in, and you work out the terms of the memo. Most memo agreements are only 1-2 weeks, longer terms involve either strong relationships or good references. A purchase, in the gem trade, cannot be refunded. I think the reason is simply that even a gem trader may not own all of his inventory (yet). Or more precisely, he may not have it paid off. So as he makes sales, he pays his bills, and his own supplier is waiting for that to happen, because that supplier may be in Sri Lanka or India or Africa without access to a wealthy market. So, until the gem is with its final owner without return, everyone may have to wait. The risk of loss or breakage, meanwhile, remains with the person who has the stone in their possession.
Let’s now return to my Aussie customer. We proceeded with great caution in conducting the sale. I first investigated possible gem candidates. I put word out and my search led to an Indian gem dealer who requested some reference before dealing with me. After passing that test, and having a nice chat in his office during which he evaluated my gem expertise, I looked at the stones, snapped some pix, and forwarded specs, prices, and certs to my prospective buyer. She preliminarily chose one stone and I went back for more pix. After more back and forth on Etsy, her asking certain questions about the stone, my trying to answer them, she decided to purchase. I memo’d the stone, which I ran by my own lab for a quick second look (because I, too, needed to be sure about the seller).
|Hand Shot of the Sapphire|
I collected the money via PayPal, then shipped FedEx but through a private insurer. This cost $100 with a $10,000 insurance policy, and my customer had to pay hefty custom’s fees. (But these were all things we sorted out before I even memo’d the stone.) I got 1 month memo terms and promised to stay in constant touch with seller and buyer. As soon as my customer had the stone in her hands, I let my seller know. Before purchase, my buyer and I had negotiated a 2 week inspection and return period, which my seller had agreed to wait out. The buyer loved her stone and all was good, no return necessary. At that point I paid out the seller. Longer returns are not feasible given the great complexity of these transactions. These aren’t shirts from Macy’s. They’re more like real estate transactions – as much as possible, the checking is done beforehand to minimize trouble. By the time you sign the dotted line, you have 3 days to withdraw, and that’s it.
At no point during this complicated transaction was this gem at my house! At no point was it in the subway. I shipped it on the day I memo’d it and I had a friend with me to walk me over to the lab and to my gem dealer friends who shipped it. They kept it in their safe, in a very secure building, until FedEx picked up. To this end, some NY gem dealers actually have a lock box at one of the many banks that surround 47thStreet. That way nothing leaves the area, which is generally very safe (practically every other person on the street is a security guard). That way they can keep what they memo’d right in the bank in their secure lockup.
Almost every week people ask me if I can get them a “this” or a “that” to look at. This I am happy to do but when the “this” goes much above $1000, it turns into a complicated matter. Perhaps this blog entry helps explain why.